Cash security deposits (typically in the amount of one or two month’s rent) have been the traditional form of tenant credit enhancement required by commercial landlords. However, in instances where landlords feel more at risk (such as in today’s uncertain economic times), landlords often seek to receive more than a cash security deposit. A letter of credit is a common alternative or additional enhancement, and in some instances, may be favored over a cash security deposit. A letter of credit is an instrument in which an issuing bank, at a customer’s (tenant’s) request, agrees to honor a draft or other demand for payment made by a third party (landlord) as long as the demand complies with specified conditions. In essence, the bank’s creditworthiness is substituted for that of its customer and the credit risk is shifted to the issuing bank.
II. Credit Enhancement for a Commercial Lease.
A. Standby Letters of Credit - An irrevocable, standby letter of credit is the standard form that this instrument takes in the context of security for a commercial lease. Unlike the commercial letter of credit, the standby letter of credit functions as an assurance of payment rather than a source of payment and is meant to be drawn upon only if a default occurs.
Please see full presentation below for more information.
Firefox recommends the PDF Plugin for Mac OS X for viewing PDF documents in your browser.
We can also show you Legal Updates using the Google Viewer; however, you will need to be logged into Google Docs to view them.
Please choose one of the above to proceed!
LOADING PDF: If there are any problems, click here to download the file.
Topics: Automatic Stay, Credit Enhancements, FDIC, Landlords, Letter of Credit, Security Deposits, Tenants
Administrative Law Updates, Bankruptcy Updates, Commercial Law & Contracts Updates, Finance & Banking Updates, Commercial Real Estate Updates
DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
© Jackson Walker | Attorney Advertising